ACT 4161

PUBLIC SECTOR ACCOUNTING

TITLE:
LITERATURE REVIEW

PREPARED BY:
TENGKU NURUL HIJJAH BT TENGKU OTHMAN

140153

PREPARED FOR:
DR. ROSMILA SENIK

DUE DATE:
2 MARCH 2009

FACULTY OF ECONOMIC AND MANAGEMENT

UNIVERSITI PUTRA MALAYSIA
2008/2009

LITERATURE REVIEW

Mohd Nor Yahya, Nik Nazli Nik Ahmad and Abdul Hamid Fatima (2008), Budgetary
participation and performance: some Malaysian evidence, International Journal
of Public Sector Management, Vol. 21 No. 6, pp. 658-673

Introduction
This study was regarding on budgetary participation and performance (BPP) conducted in
the Malaysian Ministry of Defence (MINDEF). This study includes intervening variables
of organizational commitment (OC) and perception of innovation (POI).
This study address that it is crucial to understand the intervening effects of OC on the
BPP relationship. This is because MINDEF has been implementing participative
budgeting, thus research findings that budgetary participation enhances OC and
performance will have important implications for MINDEF, other public sector
organizations in Malaysia and other developing countries generally.
Examining POI is timely given the calls in the Malaysian civil service for an innovative
culture in the public sector (Triantafillou, 2002). Additionally, recent public sector
reforms in Malaysia have also included a move towards decentralization to improve
efficiency and performance therefore budgetary processes in the Malaysian public sector,
including MINDEF have been more participative. Therefore it is important to gather
evidence on whether managers perception of innovation to their organization will
mediate the BPP relationship.

Purpose of study
In general, this study was focus on two objectives as follows:i) to explore the BPP relationship in a large, complex public sector organization,
MINDEF in a developing country, Malaysia; and
ii) to examine the intervening effects of organizational commitment (OC) and perception
of innovation (POI) on the BPP relationship.
Budgetary participation and performance, organizational commitment and
perception of innovation in the public sector
This study has using the intervening variable model view as the conceptual framework to
explain the mediating effects of organizational commitment and perception of innovation
on the BPP relationship. This is according on Awio and Northcotts (2001) work had
suggests that the budgetary process is more effective in a decentralized structure, as it
motivates managers, thus enhancing their performance. The MINDEF practices
decentralized budgeting, therefore, it may be expected that budgetary participation will
lead to improved managerial performance.
Innovation is increasingly receiving emphasis in the Malaysian public sector, which is
currently undergoing administrative reform. Among the initiatives introduced to promote
a culture of innovation is the Total Quality Management (TQM) approach. The main aims
of the TQM agenda are to increase productivity and achieve high performance.
From the prior research done that provides some evidence which suggests that the BPP
relationship is mediated by different intervening variables. However, a major problem of
this stream of research is that it has largely neglected to examine the public sector.
Therefore, this study also acknowledges this gap in the literature and reports on a survey
conducted with managers in the MINDEF, which implements participative budgeting,
and includes two intervening variables: OC and POI.

Conclusions
The results suggest that budgetary participation has a direct relationship with managerial
performance. Thus the public sector, even bureaucratic and mechanistic organizations
such as the MINDEF, should encourage budgetary participation as it is evidenced to have
an effect on performance.
The results also suggest that budgetary participation indirectly affects managerial
performance through the mediating variable of OC. However, the results do not support
managers POI as a mediating variable in the budgetary participation and managerial
performance relationship, although budgetary participation is positively related to POI. It
is an interesting finding that in a public sector organization, at least in a mechanistic
organization like the MINDEF, further initiatives may be required, such as reward
schemes, in order for POI to have an effect on performance.
The study had state several important implications for top management in public-sector
organizations are as follows:
i) the results suggest that budgetary participation has a positive effect on managerial
performance. This suggests that the budgetary process should not be authoritative or topdown in nature. Instead, top management must make an attempt to elicit feedback from
subordinates at various levels, in developing an organizations budget.
ii) the results suggest that when managers are allowed to provide inputs to the budgeting
process, they would be more committed to the organization, and such commitment will
also lead to enhanced managerial performance.